SaaS co's need to hold more cash

08/02/2017By Sammy Abdullah, CFA

We always encourage companies to hold more cash than they think need for a variety of reasons: i) a new growth opportunity may come up that you need to jump on; ii) your business could hiccup; iii) as a CFO once told me “everyday that goes by means we’re one day closer to the next recession”; iii) raising money frequently is time consuming and distracting; and iv) capital markets for startup & Series A/B funding could seize. So how much cash should you hold?

We generally recommend raising at least 2 years of cash so that you have 18 months to grow like crazy, and then 6 months to raise money based on the new milestones you’ve achieved. It also gives you a nice buffer for unforeseen events. Even 2 years may be too conservative though. Of the 72 publicly traded SaaS companies we follow, 45 generate negative EBITDA (63%) and 19 generate negative free cash flow. Those cash burners run conservatively: they tend to hold on median 4.2 years worth of operating losses on their books and at least 9 years worth of negative free cash flow. Even the riskiest company holds at least 1.3 years of cash on its books. The data is below.

TTM

TTM

TTM

Market

Enterprise

Cash/

Cash/

Name

Ticker

Revenue

EBITDA

FCF

Cap

Debt

Cash

Value

Neg EBITDA

Burn

Hortonworks, Inc.

HDP

$199

-$233

-$56

$859

$0

$84

$775

0.4x

1.5x

Cloudera

CLDR

$284

-$333

-$88

$2,270

$0

$222

$2,048

0.7x

2.5x

Instructure

INST

$122

-$49

-$31

$934

$0

$39

$895

0.8x

1.3x

NantHealth

NH

$103

-$147

-$65

$520

$192

$125

$587

0.9x

1.9x

Nutanix

NTNX

$681

-$351

$10

$2,560

$0

$350

$2,210

1.0x

---

Amber Road

AMBR

$75

-$12

-$2

$254

$24

$15

$263

1.3x

6.2x

Box, Inc.

BOX

$426

-$116

$12

$2,600

$80

$183

$2,497

1.6x

---

MobileIron, Inc.

MOBL

$172

-$50

-$1

$419

$0

$89

$330

1.8x

76.2x

Workiva

WK

$186

-$34

$11

$807

$21

$65

$763

1.9x

---

Castlight Health, Inc.

CSLT

$107

-$50

-$34

$548

$0

$103

$445

2.0x

3.0x

Appian Corporation

APPN

$135

-$15

$0

$1,170

$20

$35

$1,155

2.3x

91.2x

Okta

OKTA

$182

-$86

-$37

$2,090

$0

$224

$1,866

2.6x

6.1x

Zendesk, Inc.

ZEN

$337

-$84

$27

$2,900

$0

$248

$2,652

3.0x

---

Yext

YEXT

$134

-$45

-$24

$1,130

$0

$134

$996

3.0x

5.7x

Secureworks

SCWX

$443

-$27

-$10

$887

$0

$92

$795

3.4x

8.9x

HubSpot, Inc.

HUBS

$294

-$36

$35

$2,650

$1

$123

$2,528

3.4x

---

Xactly

XTLY

$97

-$12

$1

$504

$13

$44

$473

3.6x

---

Talend

TLND

$116

-$26

$4

$1,090

$0

$95

$995

3.7x

---

Splunk, Inc.

SPLK

$1,010

-$288

$208

$8,320

$84

$1,090

$7,314

3.8x

---

Everbridge Inc

EVBG

$83

-$10

$10

$659

$0

$40

$619

3.8x

---

Marin Software, Inc.

MRIN

$93

-$9

$4

$45

$3

$33

$15

3.9x

---

FireEye

FEYE

$720

-$219

-$9

$2,610

$751

$875

$2,486

4.0x

97.2x

New Relic, Inc.

NEWR

$263

-$49

$19

$2,560

$0

$206

$2,354

4.2x

---

Benefitfocus, Inc.

BNFT

$243

-$13

-$10

$1,130

$109

$58

$1,181

4.4x

5.5x

Q2 Holdings

QTWO

$161

-$19

-$7

$1,600

$0

$82

$1,518

4.4x

11.0x

Mulesoft

MULE

$235

-$54

$1

$2,820

$0

$256

$2,564

4.7x

---

Wix.com Ltd.

WIX

$356

-$39

$66

$2,790

$1

$186

$2,605

4.8x

---

Apptio

APTI

$168

-$23

-$2

$705

$0

$111

$594

4.8x

54.0x

Cornerstone OnDemand, Inc.

CSOD

$435

-$42

$43

$2,300

$241

$290

$2,250

7.0x

---

Twilio

TWLO

$305

-$41

$7

$2,640

$0

$289

$2,351

7.1x

---

Blackline

BL

$135

-$14

-$2

$1,990

$0

$101

$1,889

7.2x

54.5x

Coupa Software

COUP

$145

-$32

-$4

$1,620

$0

$238

$1,382

7.5x

66.7x

2U

TWOU

$223

-$18

-$13

$2,430

$14

$143

$2,301

7.7x

11.3x

Alteryx Inc

AYX

$96

-$20

-$4

$1,180

$0

$164

$1,016

8.1x

41.0x

Channel Advisors

ECOM

$115

-$7

$9

$275

$1

$63

$213

8.5x

---

WorkDay, Inc.

WDAY

$1,700

-$242

$366

$21,080

$541

$2,120

$19,501

8.8x

---

RingCentral, Inc.

RNG

$405

-$12

$34

$2,620

$0

$150

$2,470

12.3x

---

Shopify

SHOP

$444

-$30

$17

$9,100

$0

$396

$8,704

13.3x

---

Bazaarvoice, Inc.

BV

$202

-$5

$15

$400

$32

$91

$341

18.6x

---

Callidus Software

CALD

$216

-$8

$29

$1,580

$0

$183

$1,397

23.9x

---

Mindbody, Inc

MB

$160

-$9

$4

$1,200

$15

$224

$991

25.0x

---

Proofpoint, Inc.

PFPT

$442

-$17

$135

$3,750

$378

$429

$3,698

25.5x

---

Atlassian Corporation

TEAM

$620

-$16

$199

$8,070

$0

$550

$7,520

34.1x

---

ServiceNow, Inc.

NOW

$1,630

-$32

$546

$1,871

$1,140

$1,690

$1,321

52.5x

---

Appfolio, Inc.

APPF

$115

$0

$16

$1,190

$0

$27

$1,163

82.8x

---

Athenahealth, Inc.

ATHN

$1,150

$128

$169

$5,590

$280

$71

$5,799

---

---

BroadSoft, Inc.

BSFT

$348

$26

$67

$1,350

$204

$300

$1,255

---

---

Five9, Inc.

FIVN

$171

$3

$7

$1,210

$46

$56

$1,199

---

---

LivePerson Inc.

LPSN

$216

$6

$0

$795

$0

$54

$740

---

---

LogMeIN, Inc.

LOGM

$618

$128

$221

$6,140

$0

$286

$5,855

---

---

Medidata Solutions, Inc.

MDSO

$509

$77

$106

$4,500

$271

$367

$4,404

---

---

Qualys, Inc.

QLYS

$205

$49

$83

$1,490

$0

$245

$1,245

---

---

RealPage, Inc.

RP

$593

$89

$141

$3,200

$121

$60

$3,261

---

---

salesforce.com, Inc.

CRM

$8,860

$445

$2,340

$6,465

$2,540

$3,220

$5,785

---

---

SPS Commerce, Inc.

SPSC

$207

$23

$28

$992

$0

$158

$834

---

---

The Ultimate Software Group, Inc.

ULTI

$823

$63

$167

$6,720

$9

$84

$6,645

---

---

Veeva Systems Inc.

VEEV

$582

$141

$177

$8,920

$0

$664

$8,256

---

---

Alarm.com

ALRM

$276

$47

$23

$1,760

$74

$63

$1,771

---

---

Blackbaud

BLKB

$745

$126

$160

$4,330

$356

$14

$4,672

---

---

Ebix

EBIX

$306

$111

$89

$1,820

$309

$123

$2,006

---

---

Ellie Mae

ELLI

$394

$82

$114

$2,970

$0

$334

$2,636

---

---

HealthStream

HSTM

$238

$24

$47

$753

$0

$116

$637

---

---

J2 Global

JCOM

$928

$376

$269

$4,080

$828

$187

$4,721

---

---

Kinaxis

KXSCF

$121

$20

$33

$1,500

$0

$142

$1,358

---

---

Medidata Solutions

MDSO

$509

$77

$106

$4,470

$271

$367

$4,374

---

---

Mimecast

MIME

$187

$2

$33

$1,580

$2

$112

$1,471

---

---

Paycom Software

PAYC

$359

$79

$109

$4,170

$32

$93

$4,109

---

---

Paylocity Holding

PCTY

$284

$17

$47

$2,340

$0

$101

$2,239

---

---

Tabula Rasa Healthcare

TRHC

$102

$4

$4

$269

$2

$3

$267

---

---

The Trade Desk

TTD

$226

$59

$35

$2,260

$26

$107

$2,179

---

---

Upland Software

UPLD

$78

$9

$9

$500

$57

$19

$538

---

---

Zix

ZIXI

$62

$12

$15

$290

$0

$23

$267

---

---

Average

$471

-$10

$84

$2,655

$126

$274

$2,508

9.5x

28.7x

Median

$237

-$12

$16

$1,790

$1

$124

$1,644

4.2x

8.9x

If the big boys hold so much cash, why aren’t you? Don’t forget, these are publicly traded companies that can easily access cash by issuing new stock or raising debt which is readily available to them given their size. Yet, 4 years worth of cash is the norm. Even though it’s dilutive, err on the side of holding more cash, not less.